Where Have All the Chinese I.P.O.s Gone?

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Where Have All the Chinese I.P.O.s Gone?


There was a time when a Chinese Internet company’s IPO was the hottest topic on Wall Street.

When e-commerce giant Alibaba prepared to go public on the New York Stock Exchange a decade ago, the world’s biggest banks competed fiercely to finance the offering. When the opening bell rang on September 19, 2014, stock traders cheered and wore hoodies in Alibaba’s signature orange over their suits. The IPO raised $25 billion, the largest IPO ever. Numerous other Chinese companies raised billions in the United States over the next few years.

These times are finally a thing of the past. There hasn’t been anything on Wall Street even close to a blockbuster IPO in China for three years. In fact, the drought is getting worse. So far this year, Chinese companies have raised about $580 million through U.S. initial public offerings, almost all of that last month through an initial public offering by electric vehicle maker Zeekr.

As geopolitical relations between China and the United States have deteriorated, it has become increasingly difficult for Chinese companies to find a foreign market where a listing would not be jeopardized by political control.

Things don’t look much better in China. As Beijing seeks to gain greater control over the Chinese market, regulators have made it harder to go public and dramatically slowed the pace of domestic listings. Around 40 Chinese companies have gone public in their home country this year. According to Dealogic, they have raised less than $3 billion, a fraction of the value typically raised up to this point in the year.

If the current pace continues, this year will see the fewest Chinese IPOs globally in more than a decade.

The slowdown is a marked change from a time when billion-dollar listings of Chinese technology companies helped fuel a golden age of private enterprise in China. The previous IPO premium changed the way startups raised money, attracting more private capital from outside China while allowing foreign and domestic investors to transfer money out of the country.

The shift shows how China’s supreme leader, Xi Jinping, has reshaped the private sector and brought it firmly under the control of the government and the Chinese Communist Party. Officials have forced successful companies out of the public stock market, jailed entrepreneurs and abruptly banned booming industries from making profits.

“Many of these uses of capital, which were carried out through the private sector and the stock market, posed a potential risk to the party’s influence,” said Andrew Collier, managing director of Orient Capital, an economic research firm in Hong Kong.

The uncertainty caused by Mr. Xi’s actions has drained billions of dollars of value from China’s tech industry and led U.S. venture capital firms to sharply scale back their investments in China.

At the same time, Chinese companies are uncertain about the scrutiny they could face if they try to go public in the United States as tensions escalate between Washington and Beijing. “Nobody really wants to test the waters,” said Murong Yang, managing director of the Future Capital Discovery Fund in Beijing.

After it was reported in February that Shein, the China-founded online shopping company, was seeking an initial public offering in the United States, Senator Marco Rubio called on the head of the Securities and Exchange Commission to block the listing if it did Companies refuse to pass on information about relationships to the Chinese government.

“The market in which a Chinese company chooses to list today is influenced by factors beyond its fundamental business value – it is a product of geopolitical considerations,” said Linda Yu, a U.S.-based investor who previously worked with SoftBank, the Japanese technology giant, and Warburg Pincus are investing in China.

Four or five years ago, a successful Chinese company that dominated a large market was a promising candidate for a stock sale. “The question that was asked at the time was, ‘Why haven’t you listed yourself abroad yet?'” Ms. Yu said. “But now it’s ‘Why should you?'”

Most of the Chinese companies currently listed on U.S. exchanges went public between 2018 and 2021, as investors competed for shares in startups like Full Truck Alliance, whose apps connect freight customers and truck drivers, and Kanzhun, which runs a job search service Platform.

The boom years ended in mid-2021 when Chinese ride-hailing company Didi Chuxing went public on the New York Stock Exchange without the green light from Chinese regulators. At that time, Didi had more customers in China than Uber in the rest of the world. Two days after the IPO, authorities in China forced Didi to stop registering new users and undergo a cybersecurity review over concerns that the listing could mean the company would have to transfer data about Chinese people to the United States.

Within six months, Didi had taken steps to delist itself. Since then, no Chinese company has attempted to gain as much exposure on a foreign exchange, and Chinese regulators have imposed stricter standards for companies seeking to do so. This year, Alibaba canceled a plan to spin off one of its logistics-focused business units through a Hong Kong listing.

Private companies in China have long had to figure out how to operate without being oppressed by authorities.

China’s main stock exchanges in Shanghai and Shenzhen were established in the early 1990s as part of reforms that transformed the Chinese economy. However, public offerings were largely limited to state-controlled companies.

Between 2011 and 2018, there were about the same number of IPOs in China as in the US. In 2019, China launched the Star Market in Shanghai to encourage technology companies to go public there. But if possible, Chinese investors and company founders preferred a stock exchange listing in New York.

Since Didi was delisted, Beijing has made clear that the power and profits of China’s private industry should be channeled into the country’s push for technological self-reliance. The investments went into leading areas such as semiconductors, artificial intelligence and data centers. In May, the government registered a $47.5 billion fund for semiconductor development, sending a signal to entrepreneurs and investors that while some industries represent riskier bets, they have cachet.

In April, Beijing released a plan that would impose higher standards for companies seeking to go public, including more disclosures and stricter supervision.

At least 100 companies have withdrawn their plans to list on stock exchanges in Beijing, Shanghai and Shenzhen this year, according to the regulator’s public records. Venture capital investment is at its lowest level in four years.

“China’s securities regulator has traditionally taken a draconian approach to listing companies – and this plan is even stricter,” Collier said. “Many companies are afraid of listing in China or feel like they can’t squeeze their way through the eye of the needle.”

John Liu contributed research from Seoul.



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2024-06-25 04:00:10

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